Pensions freedom will be open to ALL savers - even those with final salary pots - but 7m stand to lose thousands accessing nest eggs

The retirement revolution that will give peoplefreedom over how they spend their pension pots will be available to all - but some could lose tens of thousands of pounds if they take advantage of the new rules.

Millions of people with final salary and career average pensions were initially going to be left out of the momentous reforms that will allow people to do what they want with their retirement savings, but the Government has announced today that these savers will be included.

But anyone with these pensions will have to spend hundreds or thousands of pounds on financial advice before they can take advantage of the new freedoms by transferring to a defined contribution scheme.

What's more, their employers are able to slash the value of such pensions by potentially tens of thousands of pounds if they feel that approving transfers would put the stability of the workplace pension scheme at risk.

Freedoms: Around 18 million will be given unrestricted access to their pensions as of next year.

The reforms will be introduced from next April and will give people with defined contribution, or money purchase, pension schemes unrestricted access to their pots from the age of 55.

Under the current system these people would be forced to buy an annuity or drawdown product, but under the new rules, people with these pensions will be able to make withdrawals from their pots whenever they like, only paying marginal income tax rates on the money they take, and can still get their 25 per cent tax-free lump sum.

By allowing people to transfer over to defined contribution pension schemes, the new freedoms will be available to the seven million people in the private sector with defined benefit pensions.

However, the majority of the 12 million members of public sector pension schemes will be denied access to pension freedom as the Government fears the impact it would have on public finances if it had to approve a multitude of transfers.

The Government has also revealed that The Pensions Advisory Service and Money Advice Service will be charged with providing free, impartial guidance to every pension saver at retirement.

It has backed down from its initial pledge to give people access to 'face to face' guidance, now saying that it can also be provided on the phone or online.

GUIDANCE GIVEN TO MILLIONS WON'T COME FROM INSURERS

Much of the debate about the pension reforms centered on the Government's 'guidance guarantee' and who would provide it.

Not-for-profits TPAS and MAS have been named as the preferred providers, though they will also be supported by Citizen's Advice and Age UK.

Despite expressing a wish to be involved in the guidance process, the insurance industry will not play an active role, after concerns were raised that many had failed miserably in ensuring customers made the most of their pensions under the current system.

Tom McPhail, of Hargreaves Lansdown, has questioned whether TPAS and MAS will have the resources to cope with the demand as more than 400,000 each year reach retirement age, and said savers will be faced with complex choices at retirement.

He said: 'The Treasury has very sensibly opted for a demonstrably impartial solution, looking to the likes of MAS and TPAS rather than pension providers to deliver the guidance. However, will these utility services have sufficient capacity to deliver the guidance to the hundreds of thousands who will ask for it?

'Also, the Treasury is opening the door for further product design: more flexible annuities which allow longer guarantees and one-off payments; and other complex products with intricate guarantees. It will become increasingly difficult for ordinary investors to discern whether they are actually getting a good product or not.

'In many cases it will be unsophisticated investors with relatively small pots of perhaps only a few thousand or tens of thousands of pounds. The guidance guarantee will not help them here as it will not provide specific product advice, and paying for an independent financial adviser may be too expensive to justify.

'There will therefore be a huge job for the FCA to do in policing these new products, and the sales processes around them, to ensure that investors are sold competitively priced and appropriate products. Without this regulatory scrutiny, these pension freedoms could be nothing more than a misselling charter.'

The insurance industry will not be actively involved in providing guidance to its pension customers, after concerns were expressed they would use the system to sell their own products to savers.

Chancellor George Osborne said today: 'It’s right to support hard working people that have taken the long-term decision to save for their future and I’m pleased that the responses we had to our proposals on making pensions more flexible have been overwhelmingly positive.

'We’re making sure that people have the right support to make their own choice about how best to finance their retirement and I’m pleased to confirm that everyone with defined contribution pension savings reaching pension age will get free and impartial guidance on their range of available choices at retirement.'

Warning over final salary transfers

One of the big questions since the Budget was announced was whether defined benefit pension savers would be given access to the same freedoms as defined contribution savers.

Defined benefit pensions provide an inflation-linked income in retirement guaranteed by an employer, in comparison to DC pensions where pension contributions are invested and the pot used to provide an income at retirement.

Anyone wishing to transfer from DB to DC will need to get independent advice, because DB pensions like final salary tend to be far more lucrative than DC pensions and in transferring workers will give up on generous benefits in retirement.

By making people get advice, the Government is protecting pension companies from legal action should workers later feel they made the wrong decision in transferring.

Furthermore, the Financial Conduct Authority has released findings from a review into advice given to people transferring their pensions, and found a series of failings across the advice industry, finding it often did not take into account savers' individual circumstances.

Clive Adamson, director of supervision at the FCA said: 'Transferring from a defined benefit scheme to a defined contribution scheme is an important decision for consumers. It is disappointing that our review saw failings in the advice given, particularly when incentives have been provided to consumers to transfer.

'All firms active in this complex area of pension transfer activity should think very carefully about the quality of the advice process and assurance framework required to deliver fair customer outcomes.'

When people transfer from a final salary or career average scheme to a DC pension, they are given a lump sum equivalent to the worth of the benefits they had accrued for their retirement, known as the cash equivalent transfer value.

But pension trustees have the power to reduce transfer values if they feel that paying out too much could put it at risk of failing to meet the promises it had made to its other scheme members.

The Government will release new guidance for pension trustees clarifying this power and ensuring all schemes are aware it is available to them.

It could mean that anyone transferring from DB to DC could get a smaller amount than they might expect.

WHAT WILL HAPPEN DURING A GUIDANCE SESSION AT RETIREMENT?

The FCA has today published draft guidelines for organisations providing the guaranteed guidance promised by the Government from next year.